CALIFORNIA SUPREME COURT DELIVERS WIN FOR EMPLOYERS BY LIMITING PAGA WAGE CLAIMS

By Sarah Abshear, Esq. | Brown Law Group

On September 12, 2019, in ZB, N.A. v. Superior Court (Lawson) (“ZB”), the California Supreme Court issued a decision that will significantly affect cases brought against employers under the Private Attorneys’ General Act (“PAGA”). In short, employees are no longer able to recover unpaid wages from employers using PAGA or Labor Code section 558.

What does the ZB decision mean for employers?

PAGA allows an employee to recover “civil penalties” on behalf of himself and other “aggrieved employees” for Labor Code violations. Attorneys representing employees have relied heavily on Labor Code section 558 in most PAGA actions. This is because, in addition to providing penalties for certain wage and hour violations (like minimum wage and overtime), Section 558 also provides for the recovery of unpaid wages for those same violations. In ZB, the Supreme Court announced that those unpaid wages are not recoverable in a PAGA case. Furthermore, the Court decided that the unpaid wages are not recoverable by employees at all – only the Labor Commissioner can recover them. Because employees had been relying heavily on Labor Code section 558 in most PAGA actions, this is a significant win for employers.

The ZB decision means that attorneys representing employees will now have less incentive to pursue PAGA actions. PAGA actions have been favored by attorneys representing employees because PAGA claims cannot be waived or be forced into arbitration. For this reason, employees began dismissing their individual wage claims to avoid arbitration, and instead would bring “PAGA only” actions, which usually included the unpaid wages under Labor Code section 558. The ZB decision reduces the incentive to follow this path, meaning that we could see fewer PAGA actions filed against employers and more cases in arbitration. Practically speaking, ZB may also cause more cases to result in settlement. While PAGA-only settlements already generally result in the settlement of individual claims, ZB makes those individual claims less valuable.

PAGA, Class Actions, and the Importance of Arbitration Agreements

ZB does not have the same impact on class actions, only PAGA cases. Employers, however, have a powerful tool to combat class actions:  mandatory arbitration agreements which contain class action waivers.

A class action waiver means that the employee agrees to arbitrate their dispute individually through arbitration and waive the right to participate in a class action.  With such an agreement in place, if an employee has a dispute with the employer, they cannot bring a court case. More importantly, with a class action waiver, they cannot bring a class action.

On the other hand, without an arbitration agreement with a class action waiver in place,  attorneys representing employees can still bring class actions for wage claims instead of relying on PAGA actions, even after the ZB decision.

Takeaways

  • If you do not currently require arbitration agreements as a condition of employment, you should consider doing so.
  • If you already use arbitration agreements, review the agreement to be sure it contains an enforceable class action waiver.

Please contact the attorneys at Brown Law Group if you have any questions or need assistance with arbitration agreements for your employees.

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